Why Forex Is A Great Trade

The Forex market seems to be one of the hottest markets right now.

Let take a look why

It takes small amount of capital to get going and you get leverage with it.

This is important because a lot of people entering the market are looking for ways to make money and not just to invest their spare cash.

Leverage means that you can use other people money to make your investment bigger. Not to try to scare you but this also introduces greater chance for Loss. This is not for the faint hearted or people not willing to learn how to trade, understand their trading phycology and follow money management rules. Having been duly warned please keep reading about the great potential and positive aspects of Forex trading.

Leverage is a very powerful tool to make money very quickly.

The Forex Market is the largest in the world worth more than a Trillion dollars a day. This is important for many reasons:

It provides amazing liquidity. There are always people ready to buy and sell so you can always enter and exit your position easily. Smaller markets may not always give you the ability to exit your trade so easily.

It is difficult for larger players to influence the market. In the stock market the larger players can influence a particular stock and cause movement just by their trades.

The sun is always shining somewhere.

There is always trading going on 24 hours a day Monday to Friday. It goes from city to city following the sun. Plus you still get your weekends of to relax. With stocks the markets closes and news is released and the stock can gap at the open leaving you in a worse position. When you can trade a very liquid market open 24 Hours it makes it a whole lot easier to manage your positions and relax.

You are trading so that you can have a better life right?, not just stuck in front of a computer. It is important to get clear on why you are trading or you can just be just swapping one situation for another and not really improving your life. Pep talk over with let get on with it.

Volatility

Stocks may go in sideways movements and suddenly rush up or down and there are a lot of stocks to choose from. Sure there is some stocks renown for being volatile but it is easier to find consistent volatility in the Forex market. The market is always moving so there are always plenty of opportunities for day trading

So I obviously think that the Forex Market provides great opportunity for people to enrich their lives. It gives people willing to learn a little a great lifestyle that many will envy.

I hope that you enjoyed that simple summary. There are many more great reasons to trade forex.

To learn more and get free Forex Training go to http://www.PureforexProfits.com

know what you are doing

Every FOREX trader needs to know at least the basics about technical analysis and how to read financial charts. He should study chart movements and indicators and understand how charts are interpreted. There is a vast amount of information on FOREX trading available both on the Internet and in print. If you want to be successful at FOREX, know what you are doing.

Risks of FOREX Trading

Despite the claims you may see on some FOREX web sites, FOREX is not risk-free. You are trading with substantial sums of money and there is always a possibility that trades will go against you. There are several trading tools, however, that can minimize your risk, and with caution, and above all education, the FOREX trader can learn how to trade profitably and while minimizing losses.

Scams

FOREX scams were fairly common a few years ago. The industry has cleaned up considerably since then, but you still need to exercise caution when signing up with a FOREX broker. Do some background checking ?reputable FOREX brokers will be associated with large financial institutions like banks or insurance companies and they will be registered with the proper government agencies. In the United States brokers should be registered with the Commodities Futures Trading Commission (CFTC) or a member of the National Futures Association (NFA). You can also check with your local Consumer Protection Bureau and the Better Business Bureau.

Risks

Assuming you are dealing with a reputable broker, there are still risks to FOREX trading. Transactions are subject to unexpected rate changes, volatile markets and political events.

Exchange Rate Risk ?refers to the fluctuations in currency prices over a trading period. Prices can fall rapidly resulting in substantial losses unless stop loss orders are used when trading FOREX. Stop loss orders specify that the open position should be closed if currency prices pass a predetermined level. Stop loss orders can be used in conjunction with limit orders to automate FOREX trading ?limit orders specify an open position should be closed at a specified profit target.

Interest Rate Risk ?can result from discrepancies between the interest rates in the two countries represented by the currency pair in a FOREX quote. This discrepancy can result in variations from the expected profit or loss of a particular FOREX transaction.

Credit Risk ?is the possibility that one party in a FOREX transaction may not honor their debt when the deal is closed. This may happen when a bank or financial institution declares insolvency. Credit risk is minimized by dealing on regulated exchanges which require members to be monitored for credit worthiness.

Country Risk ?is associated with governments that may become involved in foreign exchange markets by limiting the flow of currency. There is more country risk associated with 'exotic' currencies than with major currencies that allow the free trading of their currency.

Limiting Risk

FOREX trading can be risky, but there are ways to limit risk and financial exposure. Every FOREX trader should have a trading strategy ?knowing when to enter and exit the market and what kind of movements to expect. Developing strategies requires education - the key to limiting FOREX risk. At all times follow the basic rule: Do not place money in the FOREX that you cannot afford to lose.

Every FOREX trader needs to know at least the basics about technical analysis and how to read financial charts. He should study chart movements and indicators and understand how charts are interpreted. There is a vast amount of information on FOREX trading available both on the Internet and in print. If you want to be successful at FOREX, know what you are doing.

Even the most knowledgeable traders, however, can't predict with absolute certainty how the market will behave. For this reason, every FOREX transaction should take advantage of available tools designed to minimize loss. Stop-loss orders are the most common ways of minimizing risk when placing an entry order. A stop-loss order contains instructions to exit your position if the currency price reaches a certain point. If you take a long position (expecting the price to rise) you would place a stop loss order below current market price. If you take a short position (expecting the price to fall) you would place a stop loss order above current market price.

As an example, if you take a short position on USD/CDN it means you expect the US dollar to fall against the Canadian dollar. The quote is USD/CDN 1.2138/43 - you can sell US$1 for 1.2138 CDN dollars or sell 1.2143 CDN dollars for US$1.

You place an order like this:

Sell USD: 1 standard lot USD/CDN @ 1.2138 = $121,380 CDN
Pip Value: 1 pip = $10
Stop-Loss: 1.2148
Margin: $1,000 (1%)

You are selling US$100,000 and buying CDN$121,380. Your stop loss order will be executed if the dollar goes above 1.2148, in which case you will lose $100.

However, USD/CDN falls to 1.2118/23. You can now sell $1 US for 1.2118 CDN or sell 1.2123 CDN for $1 US.

Because you entered the transaction by selling US dollars (buying short), you must now buy back US dollars and sell CDN dollars to realize your profit.

You buy back US$100,000 at the current USD/CDN rate of 1.2123 for a cost of 121,223 CDN. Since you originally sold them for CDN$121,380 you made a profit of $157 Canadian dollars or US$129.51 (157 divided by the current exchange rate of 1.2123).

FOREX Trading Strategies

To be a successful FOREX trader you need a trading strategy. There is no one set strategy that is good for all traders; rather, each trader needs to develop his or her individual approach to the FOREX. Some traders rely solely on technical analysis while others prefer fundamental analysis, but many successful FOREX traders use a combination of both to get a broad overview of the market and for plotting entry and exit points.

Technical analysis relies on one key concept: Prices move by trends. The common saying in FOREX is 'The trend is your friend.' Market movements have identifiable patterns that have been studied over many years and a thorough understanding of these trends and how they can be read forms the basis of a good trading strategy.

There are many analytical tools available to understand market movements. The beginner FOREX trader is well advised to study each one separately for getting a working knowledge of their concepts and application. Once one has been understood, keep on using it while studying others. Each tool tends to reinforce the others.

Support and resistance levels are used in many FOREX trading strategies. 'Support' refers to the price level that is repeatedly seen as the bottom ?when the price reaches this level it tends to rise. Resistance levels are upper prices that the currency rarely trades beyond. Support and resistance levels contain price movements for a period of time.

When currency prices break through support or resistance levels, the prices are expected to continue in that direction. For example, if the price rises above the previous resistance level, it is seen as bullish ?the price should continue to rise.

To find support and resistance levels, price charts need to be analyzed for unbroken support and resistance levels. Charts can be analyzed in any time frame; however longer time frames establish more important support/resistance levels. Traders can use support/resistance levels to determine when to enter or exit a transaction.

Moving averages are another common tool in FOREX trading strategies. The simple moving average (SMA) shows the average price in a given period of time over a specified period of time. Moving averages serve to eliminate short term price fluctuations giving a clearer picture of price movements. FOREX traders can plot a SMA to determine when prices have a tendency to rise or fall. If prices cross above the SMA they have a tendency to keep on rising. Conversely, prices below the SMA have a tendency to continue their downward motion.

These are two examples of trading strategies that can be used individually or in combination. In practice, the FOREX trader should have a repertoire of trading tools to examine market conditions and to support the findings of one study or another. If several indicators show that the market is moving in a particular direction the trader can act with more assurance than when relying on a single indicator.

Similarly, fundamental analysis can be used to reinforce technical findings, or vice versa. Ideally, the FOREX trader will take several indicators into account when plotting a trading strategy.

Every trading strategy should provide clear guidelines about when to enter a trade, what to expect in terms of market movement, when to exit a trade, and how much loss can be accepted in case the deal moves against the trader. Following these simple guidelines and learning about technical analysis can help you become a successful FOREX trader.

Understanding The Stock Market Cycle

The winning investor should understand how a normal business cycle unfolds and the duration of these periods, paying particular attention to recent cycles. There is no foolproof guarantee that stock market cycles will last three or four years because it happened that way in the past.

The stock market ordinarily bottoms out while business is still on a downtrend, anticipating economic events months in advance. Analysts refer to this phenomenon as "discounting of the future." In like manner, bull markets frequently top out and turn down before economic recession begins.

Therefore, using economic indicators to tell you when to buy or sell the stock market is generally an exceedingly poor procedure. Yet some firms have people trying to do this very thing. It's a somewhat ridiculous approach, but it does seem to make those who don't understand the stock market very well feel better.

Ironically, economists also have a rather faulty record of predicting the economy. A few of our U.S. presidents, themselves lacking sufficient understanding of the American economy, have had to learn this lesson the slow, hard way. Around the beginning of 1983, just as the economy was in its first few months of recovery, the head of President Reagan's Council of Economic Advisors was a little concerned because the capital goods sector was not very strong. This was the first possible hint that this particular advisor might not be as thoroughly sound as he should be, because capital goods demand is never good at the early stage of economic recovery, and particularly so in the first quarter of 1983, when American plants were operating at a low percentage of capacity.

You should check earlier cycles to learn the sequence of industry group moves at various stages of the market. For example, railroad equipment, machinery, and other capital goods industries are late movers in a business or stock market cycle. This knowledge can help you determine what stage of the current market period you are in. When these groups start running up, you know you're near the tail end.

Almost always, the really big money is made in the first one or two years of a normal new bull market's upward movement. This, then, is the point in time you must recognize as soon as possible and fully capitalize upon while the golden opportunity is there.

The remainder of the up cycle usually consists of back and forth movement in the market averages, followed by a bear market. The year 1965 was one of the few exceptions, but this strong market in the third year of a new cycle was caused by the advent of the Vietnam war.